**USD/CAD Analysis: Bullish Momentum Builds as Canadian Dollar Softens**
*Original Author: James Stanley, Forex Factory – Expanded and rewritten version*
The USD/CAD currency pair has recently staged a noticeable rebound after previously coming under pressure from Canadian dollar strength. As traders seek clarity on the next directional move, the broader context of macroeconomic signals, central bank policy expectations, and technical analysis are all contributing factors shaping the outlook for this major Forex pair.
In this extended analysis, we will explore:
– Recent USD/CAD price trends and key technical levels
– Economic data influences from both the U.S. and Canada
– Anticipated central bank decisions and their potential FX impact
– Broader market sentiment and commodity influences such as oil
– A longer-term USD/CAD outlook supported by multiple timeframe charts
Let’s begin with an overview of where the pair currently stands.
## USD/CAD Makes a Bullish Push, But Resistance Looms
USD/CAD has recently found a bid after bouncing from a key Fibonacci support level located near 1.3600. This level aligns closely with the 23.6% retracement of the March-April bullish move. The subsequent recovery brought the pair back above 1.3700, reviving bullish sentiment but also bringing it into a zone of resistance.
### Key Technical Developments:
– Support was found around 1.36, suggesting that bullish forces still hold influence within the broader trend.
– The 1.3700 handle is being tested again, which offers a psychological barrier alongside structural resistance from the April highs.
– Upward momentum may continue in the short term as the U.S. dollar benefits from improving economic data and hawkish Fed commentary.
– Fibonacci retracement levels from key recent moves continue to define potential pivot zones, including deeper resistance around the 1.3785 area.
Looking at the longer-term picture, the USD/CAD pair has been largely range-bound since early 2023, fluctuating between roughly 1.32 and 1.39. This wider range may continue to govern price action unless a significant macroeconomic catalyst emerges.
## U.S. Dollar Outlook: Fed Hawkishness Supports USD Strength
One of the primary drivers underpinning recent USD strength is the resilience of the U.S. economy. Despite earlier expectations of a potential easing cycle by the Federal Reserve in mid-2024, economic data in recent months has consistently surprised to the upside.
### Contributing U.S. Factors:
– Nonfarm payrolls remain robust, with the U.S. labor market continuing to exhibit resilience.
– Core inflation remains sticky. The latest Consumer Price Index (CPI) reading showed headline inflation cooling slightly, but core CPI remains above the Fed’s 2% target.
– Services inflation is especially persistent, underscoring the Fed’s caution toward premature rate cuts.
– Federal Reserve officials, such as Chairman Jerome Powell and FOMC Board Member Christopher Waller, have reiterated that rates are likely to remain higher for longer.
– According to the CME FedWatch Tool, probabilities of multiple rate cuts in 2024 have now dropped significantly. Only 1–2 cuts are priced in by year-end, compared with previous estimates of up to 3–4 cuts.
This changing rate outlook has contributed to a firmer U.S. dollar since mid-May, helping lift USD/CAD.
## Canadian Dollar Weakens: Economic Headwinds Mount
While the U.S. economy surprises to the upside, Canada’s economic data prints have deteriorated in recent months, compelling market participants to anticipate a more dovish Bank of Canada (BoC).
### Notable Canadian Developments:
– GDP growth in Canada remains subdued. The December 2023 quarter showed flat economic activity, and momentum through Q1 2024 continues to be stagnant.
– Canadian employment data has softened. The national unemployment rate ticked higher in April and May, and full-time employment growth has stalled.
– The latest
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